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Tied in knots: the Government's 'charity tax' plans

Not for the first time the government appears to have tied itself in knots over the row on charitable giving.

The policy to cap the amount of income tax relief the super rich can claim has prompted charities to scream warnings about how it will hit philanthropic giving and cut the total amount of donations made.

The plan in the Budget is to cap at £50,000 or 25 per cent of income the tax relief available on donations. The government says it is to ensure the rich pay their fair share of tax.

Government figures today show one in 10 of those who earn more than £10 million per year pay less than 20 per cent income tax (lower than the basic rate).

Reports suggest the Chancellor is considering either doubling the limit on charitable donations - to 50 per cent of earnings - or to allow donors to roll over any relief they have not used into the following tax year.

The government says the plans are to ensure the rich pay their fair share of tax Credit: REUTERS/Toby Melville

So someone with earnings of £5m would be able to donate £2.5 million to charity each year rather than £1.25 million under the current plans.

Downing Street suggested to political journalists this morning that there would be a "formal consultation" in the summer on the implementation of the policy.

It suggested a retreat was underway.

But they later confirm the consultation was always planned - it was in the HMRC documents from the time of the Budget. You can see it here.

But it begs the question, why no one flagged up this consultation before.

At the very least it shows there is an opportunity in the months ahead to rethink this one - under the guise that ministers always planned to look again at how it would affect charities.

But while charities legitimately fear a fall in donations - it also begs a question about whether those with lots of money should be given the the choice of either donating their money to charity or paying income tax to fund services like the NHS and education.